Scenario 1 - customer owns a two-unit apartment building and is refinancing the existing mortgage to construct a new addition to the existing building to add a third unit.

Scenario 2 - customer owns a two-unit apartment building and is refinancing the existing mortgage to gut the building and turn it into a 3-unit apartment house.

On the first one I am thinking purchase because a new dwelling unit is being constructed, but on the second one a refinance because you can only build something once and the structure is already there, just being resubdivided.

Other thoughts?

Scenario 1--i would code as a refinance.....the dwelling already exists in the form of 2 units...the addition of 1 unit IMO improves the property; it doesn't qualify as a home purchase.

Scenario 2--I think it depends on what you mean by gut the building, but if you mean what i think, i would agree that it's a refinance. If the structure were to be totally razed down to the foundation, then i'd probably look at it differently.

This is the discussion we are having here - it is not like just adding a room on to an existing structure, it is adding a whole dwelling unit on to an existing structure. And trying to think of similar scenarios - if I put an addition on to my house for an in-law apartment, I am creating a new dwelling unit structure. Does it matter if it is attached or detached? If I am building a separate structure on my property that I can use as a rental or an in-law, does it then become construction rather than HI (or refi, depending on the circumstances).

I could probably argue either way, I just want to have the winning argument, if there is such a thing with examiner/auditors.

If you had a 35-unit apartment building and your loan created 5 more apartments attached to the existing 35...would you call that a home purchase loan? I would not. In my opinion, yes, it does matter if it's attached or detached.

I think the distinction is this: in one instance, you are constructing a dwelling. In the other instance, you are constructing a UNIT. An apartment building with 35 units is just that....one (multi-family) DWELLING that has 35 UNITS.

Well, for HMDA you have 35 dwellings, but I see your point.

No, you have 35 units. A 35 unit apartment complex is just ONE dwelling for HMDA.

Unless the 35 units were individually owned condos, you only have one dwelling for HMDA.
I seem to remember Dan saying somewhere that building on an existing foundation does NOT equal a purchase for HMDA.
And I'm with raitchjay that adding on to the existing fits the definition of home improvement. In this case adding a 3rd unit to the existing 2 is improving the existing, not building new.

I seem to remember Dan saying somewhere that building on an existing foundation does NOT equal a purchase for HMDA.

That is my take on it and is strictly my opinion. I have nothing regulatory to make that opinion absolute.

Constructing a dwelling starts with laying its foundation. If you strip an existing dwelling down to its foundation then rebuild on that foundation then IMO you have remodeled the existing dwelling.

As to the 2 scenarios presented IMO they are both refis. Adding an additional unit to an existing apartment building is not constructing a new dwelling, a residential unit yes, but not a dwelling.

For HMDA you report the number of 1-4 dwelling units that secure the loan. 35 apartments in multi-family dwelling would be 35 dwelling units but they would not be 35 dwellings. It is one dwelling with 35 units. If as TR states they were individually titled condos then you would have 35 dwellings. A condo meets the definition of a dwelling, an apartment does not.

What about this scenario?

Business owns and rents 15 units (all single individual family dwellings) in the same community. The business is now taking a loan to construct 15 more individual dwelling units within that community to bring the total to 30. The loan gets set up 12 month I/O, then automatically converts to P&I. Is that considered a purchase since they built 15 new dwellings?

As you describe it that is a construction permanent loan and those are reportable as purchases.